Frontier Airlines

2008-07-07T21:02:00.001-07:00

Challenges for Frontier Airlines

2008-07-06T17:25:00.000-07:00

Frontier's challenges have multiplied since the Denver-based airline filed for bankruptcy protection in April.
By Greg Griffin The Denver Post
Article Last Updated: 07/05/2008 10:16:00 PM MDT
Fronter Airlines Airbus 319 jetliners sit at gates on the A concourse at Denver International Airport in this photograph taken on Monday, June 2, 2008 in Denver. Frontier Airlines, which filed for bankruptcy protection in April, says it plans to trim capacity, planes and eventually staff this fall and winter. (AP David Zalubowski)
Frontier Airlines was forced into bankruptcy protection three months ago by what some considered a technicality: Its credit-card processor demanded more collateral than the carrier could provide.
But Denver-based Frontier's financial situation has quickly deteriorated since the April 10 filing. Its restructuring effort now looks like a fight for survival.
Oil prices have risen 30 percent since Frontier entered Chapter 11. Jet fuel, which accounted for 31 percent of Frontier's operating expenses during its last fiscal year, rose to 45 percent in May and probably climbed higher in June. Meanwhile, stiff competition has kept Frontier from raising its fares appreciably.
Frontier hemorrhaged $38 million in April and May alone, after
Chapter 11
Read what Frontier's animal fleet is saying in "Talk Back to Al."
Check Frontier's FAQ for passengers.
Read a key filing describing Frontier's bankruptcy.
Watch video about the bankruptcy filing.
Discuss the filing, and what it means for the airline industry and the economy.
View images of Frontier at DIA.
Visit Frontier's reorganization website, with information about the filing for investors and passengers.
Review Post aviation reporter Kelly Yamanouchi's travel blog, "Winging It."
Read court documents pertaining to the bankruptcy. posting a $60 million loss for the fiscal year ended March 31. Cash held steady in excess of $100 million through May, but only with the help of one-time gains and bills left unpaid.
Adding to Frontier's troubles, rival Southwest Airlines is adding Denver flights at a feverish pace. The airline, which has 84 daily departures from Denver, will increase that to 95 by early September and 115 by the end of the year. That comes as Frontier cuts 21 of its 175 departures by fall. A few of those flights are seasonal and will be restored in the spring.
Amid all that, Frontier executives are trying to raise the money they need to lift the airline out of bankruptcy. The number could be in the hundreds of millions, and the timing could not be much worse.
Airline-industry woes and the credit crunch are making funding scarce. Those conditions have killed more than one potential airline combination and make it more difficult for Frontier to find a merger partner.
Frontier's best hope is that oil prices drop — closer to the $110-a-barrel range — over the next few months.
"It's really tough for Frontier," said Henry Harteveldt, an airline analyst with Forrester Research in San Francisco. "I know Frontier is beloved

Click to enlarge (Illustration by Severiano Galvan, The Denver Post Source: Frontier Airlines)in Denver, and I wish I could be more optimistic about its future. But it's already been proven that no city can support three hub airlines."
On Thursday, Polk Majestic Travel Group, a large Denver corporate travel agency, suggested customers avoid booking with Frontier for winter holiday travel.
United Airlines, the dominant carrier at Denver International Airport, has its own problems. United lost $537 million during the first quarter and will cut capacity by 14.5 percent this year. In Denver, United and other airlines have lost market share to Southwest as Frontier's share of seats and passengers has grown.
Frontier has made a series of cost-cutting moves and is working on more to help it weather the storm, spokesman Steve Snyder said. The company has loyal customers and a dedicated workforce.
"Despite all of the negative things you hear about this company, we still think we have a very good story to tell," he said.
Frontier chief executive Sean Menke is still focusing on an early 2009 emergence from bankruptcy, Snyder said. Menke declined an interview request.
A Frontier liquidation, almost unthinkable three months ago, might allow United to secure its grip at DIA, but only if it could free the money to expand. More likely, Southwest could scoop up many Frontier customers and, possibly, some of its employees and gate space at DIA.
Frontier employs about 5,000 of its 6,000 workers in Denver. Hundreds will be let go during a planned downsizing this fall. Frontier rental payments, landing fees and other payments account for about 15 percent of DIA's airline revenue.
The airline's success has long been a source of civic pride in Denver and evidence of the region's economic vitality.
The competitive landscape at DIA is changing quickly. An analysis of capacity data from the U.S. Department of Transportation and OAG Worldwide Ltd., using airlines' announced capacity changes, indicates that about 18 percent of the available plane seats at DIA could be Southwest's by the end of the year. United would have 44 percent and Frontier about 22 percent.
Southwest entered Denver in January 2006 and flew just 6 percent of available seats here last July.
Southwest is flying planes less than three-quarters full in Denver, compared with a load factor of more than 80 percent for United and Frontier, according to load-factor data from Frontier. Southwest can profit while flying more empty seats and charging lower fares because it has locked in fuel purchases at prices well below current levels. Southwest's fuel hedges will be reduced significantly in 2010.
That means Southwest is in a strong position to make big gains in passenger traffic when United and Frontier draw down their schedules in the fall.
Frontier and its employees can rally around a few positive notes — facts that Menke is almost certainly repeating to potential lenders.
First, Frontier has loyal customers in Denver, many of whom pay higher fares even on routes that Southwest flies. Customers like Frontier's assigned seating, friendly service and the cuddly animals on its airplanes and in its ad campaigns.
"From a consumer point of view, more people are getting on Frontier flights and paying more to do it," said Evergreen aviation consultant Mike Boyd. "That's a heck of an endorsement of the market viability of the airline. ... This is an entity that is competing with Southwest and doing a good job at it."
Second, Frontier has relatively good relations with its employee groups, unlike United and other major carriers that have battled bitterly with unions in bankruptcy.
"People really do love the airline. I'm still pretty proud to say I work for Frontier," said John Stemmler, president of the Frontier Airline Pilots Association, which in May accepted pay cuts and other concessions.
"I can't blame them. ... There are so many external factors right now that are just pushing and pulling on airlines."
So far, the bankruptcy has moved smoothly, with Frontier encountering not even a contested motion in court.
A third advantage for Frontier, versus its rivals, is bankruptcy itself. It allows the company to escape expensive leases, return aircraft to lessors and renegotiate debt payments.
Frontier "can ground or take out of its fleet aircraft in a process that's going to be easier for them than a carrier faced with ongoing lease payments on planes sitting on the ground," said David Swierenga, a consultant in Round Rock, Texas.
Frontier owes about $500 million on aircraft financing, some of which it already is whittling down through aircraft retirements.
Part of Frontier's quandary stems from its success. The airline has very little fat to trim, unlike United in its three-year bankruptcy. Menke moved quickly, before Chapter 11, to refocus the airline on its most profitable routes.
Frontier quickly dispatched of one of its biggest operational challenges, a money-losing regional service contract with Republic Airways. Frontier lost $33 million on the regional service during fiscal 2008. It is serving some of the destinations with its Lynx subsidiary, which flies fuel-efficient Bombardier turboprops.
Its popularity with Denver travelers limits what kinds of changes it can make to its service and strategy, Snyder said. Though other airlines are charging passengers to check in a bag, Frontier has refrained because it doesn't fit with the carrier's image. The carrier does charge for a second bag.
The airline is considering changes to its fare structure, Snyder said. Passengers willing to forgo frequent-flier miles could pay less, he said. Menke is considering all options, Snyder said.
"He enjoys being the underdog and having someone telling him this can't be done."

Opinions

2008-07-05T20:18:00.001-07:00

DENVER - The CEO and president of one of the nation's largest travel agencies is telling customers to avoid advance bookings on Frontier Airlines but an industry expert say that advice is based on opinion, not fact.
In a newsletter, Robert Polk of Polk Majestic Travel wrote in part, "We do not think Frontier will survive in its current configuration. I hate to say this, but Frontier must find someone that will purchase them or they must merge with another carrier to survive... Do you want to tie up your money today for holiday bookings on a carrier that has a possibility of not being here for the holidays?"
Polk contends that Southwest Airlines will continue to eat into Frontier's market share and that Frontier will not emerge from bankruptcy if that continues to be the case.
Frontier Airlines spokesman Steve Snyder says other airlines are losing more money than Frontier and says Polk's decision to single Frontier out is unfair.
"Our capacity and workforce reductions are similar to those of every airline in the country," said Snyder. "If there's a concern about booking away from us there needs to be concern about booking from just about every other airline in the industry."
Evergreen-based Aviation Consultant Mike Boyd cautions fliers about believing any dire predictions.
"Don't listen to this stuff until you get some facts. If someone comes out and says 'XYZ the airlines going to go out of business,' ask why. Get some facts; get some data because Frontier Airlines is an important part of Denver's economy. They're a local team; they do a great job. If someone takes a shot at them you'd better ask, 'Why are you aiming at them?'" Boyd explained.
Polk made it clear that he wishes Denver-based Frontier the best and that this statement is his personal opinion. He also stressed in his newsletter that he has been wrong "once or twice" over the years and in Frontier's case he hopes he is "dead wrong."
Aside from citing his opinion, Polk explained, "Although Frontier's cash position is not decreasing; they are cutting capacity by 17 percent this fall. This will help the carrier survive the slower fall months before the holiday rush hits, but my guess is that advance bookings cannot be strong."
Boyd added, "Any airline today is going to have a problem surviving... Not a single one (airplane) was ever designed for $50 a barrel oil let alone $140

Airbus Delays

2008-07-05T20:16:00.001-07:00

BY CHRISTOPHER SCINTA
Bloomberg News
Frontier Airlines Inc., the bankrupt discount carrier based in Denver, delayed the acquisition of seven Airbus planes to get $7.5 million back from pre- delivery payments.
Airbus will return the cash under an amended contract, Frontier's attorneys from Davis Polk & Wardwell in New York said in a filing with the U.S. Bankruptcy Court in New York.
The first aircraft, Airbus A318s and A319s scheduled for delivery in 2009, will be postponed to early 2011, Frontier spokesman Steve Snyder said.
"The money will provide needed liquidity to fund the debtor's operations," Frontier's lawyers said in the court documents. "Delaying the delivery of the aircraft by two years better aligns the operational needs of the debtors with their fleet."
Frontier, which operates a fleet of about 60 Airbus planes, is cutting capacity by 17 percent as fuel costs have climbed to record levels.
The airline will seek approval of the revised deal with Airbus at a hearing scheduled for July 11 before U.S. Bankruptcy Judge Robert Drain.
In May, Frontier won court approval to sell four Airbus planes for $106 million to Verulamium Finance Ltd., making a net cash gain of $37.5 million.

Employee Letters

2008-07-05T20:15:00.002-07:00

Frontier Airlines has begun sending letters to employees notifying them that they will be losing their jobs. The letters are required by federal law to be sent at least 60 days prior to termination, Frontier spokeswoman Lindsey Purves said.
"It's a general notification that their jobs are going to be eliminated and their manager will be talking to them about it," she said.
Frontier said last week it would reduce flight capacity by 17 percent and make "proportional" job cuts starting in September. Frontier employs nearly 6,000 people, about 5,000 of whom are Denver-based.
The airline is restructuring under Chapter 11 bankruptcy protection.

Continuing Operations

2008-07-05T20:15:00.001-07:00

By Marshall Zelingerm.zelinger@krdo.com
COLORADO SPRINGS - Just months after starting service in Colorado Springs, a 114-page Security and Exchange Commission report filed by Frontier Airlines suggests the company may be forced to discontinue its operations. According to the SEC, a 10-K provides a comprehensive overview of a company's business and financial condition and includes audited financial statements.
Under a topic entitled "Risks Related To Frontier," the company writes: "We face significant liquidity challenges which could impact our ability to continue our operations."
Since filing for Chapter 11 Bankruptcy on April 10, Frontier Airlines reports a net loss of nearly $38.5 million ($38,426,000).
According to the airline's SEC 10-K, a number of factors need to change or Frontier could be forced to discontinue operations:
"We have substantial liquidity needs in the operation of our business and face significant liquidity challenges due to historically high aircraft fuel prices, low passenger yields, credit card processor holdbacks and cash reserves and other cost pressures. Accordingly, we believe that our cash and cash equivalents and short-term investments will remain under pressure during 2008 and thereafter. We are uncertain we will be able to obtain debtor in possession financing during our Chapter 11 proceedings. Accordingly, as we continue to seek debtor in possession financing, we will also attempt to address our liquidity concerns through the sale of aircraft and other assets, the sale and leaseback of aircraft and other assets, rejection of Republic Airlines contract, negotiations with our credit card processors and other liquidity enhancement opportunities. We cannot guarantee that these efforts to raise cash and improve our liquidity will be successful, in which case we could be forced to discontinue our operations."
"There's no doubt that when you're in Chapter 11, of course going out of business is always an option," says Frontier spokeswoman Lindsey Purves. "We're making capacity reductions. We're not the only airline to do this, in fact we're one of the last airlines to do this."
In the 10-K, Frontier states: "increases in fuel prices have had and could continue to have a material adverse effect on our operations and financial results."
"A significant portion of our loss is fuel," says Purves.
From April 1, 2007 until March 31, 2008, Frontier paid an average of $2.45 a gallon for fuel. Since filing for Chapter 11, the airline pays an average of $4.22 a gallon (as of June 23, 2008).
In the 10-K, Frontier also sites competition from United and Southwest Airline as a risk factor, and having to match airfare prices on similar routes to retain its market share.
Frontier also says high costs at DIA "may impact our results of operations."
"We are doing absolutely everything we possibly can to stay in this game," says Purves.
Frontier is also planning layoffs for later this year, although the exact number of employees isn't known.
"Your are forced to make some changes in the organization in order to survive in the current market and I think as all those airlines are doing, it's just a statement of the times and it's what we're doing to stay in business," says Purves.
According to Purves, there's no change to service at the Colorado Springs Airport. Frontier just started flying from Colorado Springs in mid-April. Purves didn't know the status of the planned maintenance hangar in Colorado Springs, and couldn't say if the bankruptcy filing would delay construction or cancel it altogether.
As of June 23, Frontier reports 6,170 employees. The airline flies 60 jets to 59 locations.